A Tribute to the Thoughts of Another and his Friend"Everyone knows where we have been. Let's see where we are going!" -Another

Monday, March 22, 2010

US Mints ‘Gold Disks’ for Oil Payments to Saudi Arabia

Anyone who has read ANOTHER (THOUGHTS!) ("The Inside Story on the Gold-for-Oil Deal that could Rock the World's Financial Centers") and FOA ("Walking the Gold Trail Using the "Thoughts!" of ANOTHER") or has been following this blog should immediately recognize the significance of these two articles (written in 1981 and 1991 respectively) presented today by CoinLink. (Hat tip Sigo Plapal)

(This first article appeared on pages 2-5 of the September/October 1981 print edition of Saudi Aramco World. by Robert Obojski.)

The Coins that Weren’t

“In Saudi Arabia, gold coins have always been important in the monetary system. For years, in fact, paper money was unacceptable, and to pay royalties to the government, Aramco once flew kegs of both gold and silver coins to jiddah. In 1952, when the Saudi Arabian Monetary Agency (SAMA) was formed, the first coin issued was a Saudi sovereign – a gold coin equal in weight and value to the British sovereign – that was later demonetized and today sells for about $124.

To collectors, however, the most interesting Saudi gold coins weren’t coins at all; they were “gold discs” Similar to coins, they were minted by the Philadelphia Mint in the 1940’s for Aramco, and bore, on one side, the U.S. Eagle and the legend “U.S. Mint, Philadelphia, USA” and, on the other side, three lines on the fineness and weight. They looked like coins, they were used as coins, but, technically, they weren’t coins.

In the 1950’s, numismatists were puzzled by these “discs” until - in 1957 – the story emerged in The Numismatist. Aramco, required to pay royalties and other payments in gold to the Saudi government, could not obtain the gold at the monetary price fixed by the United States so the U.S. government specifically began to mint the “discs” – actually bullion in coin form for these payments. In 1945, for example, the mint turned out 91,210 large discs worth $20, and, in 1947, 121,364 small discs worth $5, according to The Numismatist.

Because most of the discs were melted down for bullion, or later redeemed for the Kingdom’s gold sovereigns, the discs are interesting additions to art collections. But care is necessary as counterfeits are common.”

(Then in 1991, the New York Times printed an article by Jed Stevenson on the “disks” in reference to several which were to be sold by Stacks in an upcoming auction in May of 1991.)

Gold coins made by the U.S. to help oil companies pay their debts to the Saudis.

Sometimes coins are minted for the strangest of reasons. Some Saudi Arabian bullion coins, several of which will be auctioned by Stack's early next month, are a prime example.

The coins were struck in Philadelphia by the United States Mint in 1945 and 1947 to satisfy the obligations of the Arabian American Oil Company, or Aramco, which had been set up in Saudi Arabia by four American oil companies. The company was obliged to pay the Saudi Government $3 million a year in oil royalties and its contract specified that the payment be made in gold.

The United States dollar at the time was governed by a gold standard that, at least officially, made the dollar worth one thirty-fifth of an ounce of gold. But the price of gold on the open market had skyrocketed during World War II.

For a time the Saudis accepted payment in United States currency, but by 1945 they were insisting that the payments in gold be resumed. Aramco sought help from the United States Government. Faced with the prospect of either a cutoff of substantial amounts of Middle Eastern oil or a huge increase in the price of Saudi crude, the Government minted 91,120 large gold disks adorned with the American eagle and the words "U.S. Mint -- Philadelphia."

Aramco paid for the minting and the bullion. The coins were shipped off to Saudi Arabia.

These bullion coins weighed 493.1 grains, slightly more than a troy ounce, and were 91 2/3 percent gold and 8 1/3 percent copper. The fineness was that of the British sterling system then current in the Middle East. The United States standard was only 90 percent gold.

Although some Aramco employees reported seeing the coins in circulation in the late 1940's, even using them as poker chips, the coins were not widely circulated. Islamic law discourages images and most Saudi coins are adorned with only Arabic script as decoration. The eagle with its wings spread wide must have been a startling sight to Saudi Arabia's more orthodox Muslims.

But most of the coins disappeared for more temporal reasons. The bullion coins were crated and shipped to Bombay, where the $35-an-ounce American gold was sold for $70 an ounce. Most of the coins were melted into bars and later sold in Macao.

In 1947, Aramco contracted for 121,364 smaller bullion coins with the same design, but weighing just 123.27 grains. Those coins actually saw some popular use in Saudi Arabia and traded for about $12, or 40 silver Saudi riyals. But the popularity declined after Swiss and Lebanese counterfeiters began striking coins that were similar but less valuable.

In 1951, Saudi Arabia began minting its own gold coins and melted down most of the remaining small and large bullion coins from the United States Mint, restriking them as Saudi coins.

Today both sizes of the Aramco bullion coins are quite rare and many counterfeits are in circulation. The genuine large disks have fine lines in and around all the letters; the counterfeits have small dots. Counterfeit small disks often show a large indentation above the M in Mint.

33 comments:

Thanks to you, FOFOA, I do understand the significance of this. A few years ago, I certainly would not have given it another thought. Thank you for all of your enlightening posts and thanks for bumping this up on the famous fofoa blog :)

It is clear that all the non-dollar factions of our world have a deep distrust in the management of the dollar and the $IMFS. And that they are buying more gold (and selling less) in preparation for things to come. So it is quite a mystery why any of them are still playing the Fed's debt game...

Where are the banks getting the money to lend to the US government? From the US government itself.....one hesitates to make forecasts about an arrangement so absurd and unstable that the list of potential break-points is endless...

Btw, the story on the Aremco coins is indeed quite huge in my opinion. More evidence for the thesis of A/FOA plus I was not aware that Saudi had been demanding gold from what seems like the very beginning (first oil discovery in Bahrain was in '32).This seems to indicate that the Saudi's did not even trust the internationally gold-backed dollar.

Quite nice seeing those Saudi/gold-related articles pop up. Quite the essence of the writings of A/FOA/FOFOA.

Funny how silver was also used in previous times: … a large silver coin minted in Europe ...

The influence Islam is also interesting and quite relevant: In those days the government's role in the economy was based on the Islamic dictum that "things Exchanged shall be of equal value." "Money" meant coins made of metals having intrinsic values equal (as far as possible) to the exchange values of the coins.We've seen some lectures on it here in the past (I have no particular sympathy for the political ideas of the speaker, but his monetary insights are interesting).

Gresham seems to have lived there as well: When the world price of silver rose so high that the value of metal contained in the riyals exceeded the official exchange value of the riyal, they were equally quick to exchange gold and other currencies for silver riyals, then melt the riyals and sell them as bullion to silver brokers. At such times, silver riyals disappeared from circulation.

Gold was indeed money and currency: The Saudi Government believed that the only proper way to meet the increased demand for money was to put more gold and silver coins into circulation. Accordingly, for a two-year period beginning in 1948, Aramco paid its oil revenues in foreign gold coins which were packed in kegs and flown to Jiddah every month.Again money should be money according to Islam, and hence of equal value - Riba (interest; multiplying) is haram (not allowed by god).

Perhaps this partly explains their "passion" for gold and monetary insight to a certain extend.

A fascinating find! It feels as if the tesserae are all slotting into place.

Martijn,

I am not surprised that the Saudis did not trust the dollar even when it was gold-backed. This attitude is consistent with "The past ideals of building solid, enduring, long term wealth" as written by "Another" and quoted by FOFOA (http://fofoa.blogspot.com/2010/03/of-currency-wars.html).

I empathize with that attitude, which I have fully taken on board. Once the light is seen, there is no going back.

Paper is paper and gold is gold -- even when one appears to be backed by the other. When a layer of paper is interposed between gold and its owner, the intermediary has the opportunity to manipulate and deceive.

The Saudis knew it even back then, precisely because they were still very much in touch with the concept of "solid, enduring, long term wealth."

The source of that attitude is somewhat speculative (and perhaps not a topic for this site), but they knew it alright.

The funny thing is that they had not experienced much of the industrial revolution (which has been a huge wealth improver) prior to the discovery of oil, and hence did not seem (at least not to me, although not being very familiar with the country) too focused on building wealth. On the other hand the middle-east at some point has been the most advanced society in the world and also seems to have been the origin of the agricultural revolution many thousands of years ago.

I was not trying to promote the quran or islam in any sense, but the focus on money and riba did strike me as perhaps being somewhat relevant.

Bottom line is that the Saudi's did understand the value of gold over printable paper - although when used to transfer knowledge the latter can be quite valuable as well.

...No, the 800-pound gorilla is far closer to home for most members of OPEC: It's Iraq.

If Baghdad's own projections are to be believed, Iraq could match Saudi Arabia's daily crude output of 10 million to 12 million barrels within the next seven years...

...It would be quite a change from the near hegemony that Saudi Arabia enjoys within OPEC today. For decades, Saudi Arabia has served as the world's central banker of oil supplies.

FOA: Oil now doing it's two part thrust to drive the US into hyper status. Thus ending it's reserve roll for good. High oilprices are forcing the trade deficit to alarming, derivative busting levels. In addition, these same oil prices willcompletely break the ability of American goods to be priced competitively. At some point our domestic economy willroll over and the above mentioned cascading defaults will begin. Rather than raising local interest rates to slow ourdollar flood (as the fed would do in the past) they will, like Japan drive rates to almost zero. All in a mad attempt tosave the system and keep the world away from Euros. It will not work.

I don't believe the source of the Saudis' attitude is at all speculative. Delving into religion without getting religious, the Torah is part of the sacred texts of Islam. Within the Torah it says:"Do not use dishonest standards when measuring length, weight or quantity. Use honest scales and honest weights, an honest ephah (a dry measure) and an honest hin (a liquid measure)." -Leviticus 19:35-36

This passage is part of the law, and the essence of the passage is repeated a couple more times in the Torah and, I presume, repeated again in the Quran. Thus, my interpretation is rather simple. The Saudis' prior experience with paper money would have revealed it as a dishonest standard. Their long cultural and religious heritage taught them that gold is the ultimate and most honest standard of value.

Looks like a loss for the finance ministers and a percieved victory - though horrendously stupid - for Merkel.

Tensions between Merkel and Schäuble (German finance minister) have recently exploded over this issue from what I know. Merkel - who I believe deeply misunderstands the situation - wanted the IMF in, while Schäuble relucted to even consider it.

why do you think Merkel is misreading the situation. I totally disagree. If anything she is uniquely suited to understand exactly what is happening in the monetary ssytem. Let us not forget she is trained in the "hard" sciences.

Per Biography"She studied physics at the University of Leipzig, earning a doctorate in 1978, and later worked as a chemist at the Central Institute for Physical Chemistry, Academy of Sciences (1978–1990)."

The German Bundespräsident (president) normally keeps fairly quit about state affairs, but in this case he is beginning to speak. Interestingly enough Horst Köhler has studied economics (and politics) and has also held a high position (Managing Director and Chairman of the Executive Board) in the IMF (2000-2004).

Accord to Der Spiegel Köhler is "giving Merkel grades in the same manner a school teacher would, thereby making a mock of Merkel and her entire administration." Köhler has quite some support from the German population.

why do you think Merkel is misreading the situation. I totally disagree. If anything she is uniquely suited to understand exactly what is happening in the monetary ssytem. Let us not forget she is trained in the "hard" sciences.

Of course someone could that that. The truth is, they are on the same team. Why is this so hard for people to understand?

You describe it as a wedge. They would think of it as what do they need to do next to get where they want to go. WS might get wiped out but a more centralized control will emerge in it's place and we will all be like man they bit the dust and one side won. They are good.

As big as this fraud is, it is NOT the "biggest". That record falls to the scheme of fiat money coupled with a tax on incomes as measured in nominal currency. This enables theft from all holders of fiat currencies, which happens to be all humanity.

None other than Alan Greenspan said it best in the last two paragraphs of his 1967 article, Gold and Economic Freedom:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."statists' antagonism toward the gold standard."

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